Morning everyone. Thank you for dialing into Keppel DC REIT's first half 2025 results webcast. I am Renee from the Investor Relations Team. Let me introduce the management team. On the call we have CEO Mr. Loh Hwee Long, CFO Mr. Adam Lee, and we will start with an overview of Keppel DC REIT's financial and operational performance followed by the question and answer session for analysts who are joining us on the Teams platform. Please be reminded to mute your mic throughout the presentation. I will now hand the time to Hwee Long.
Good morning everyone. Thank you again for joining us this quarter. On this call I will walk you through our performance for the first half of 2025. Firstly, starting with key highlights, Keppel DC REIT delivered another strong set of results for the first half of 2025 with distributable income up 57.2% year- on- year to SGD 127.1 million. Distribution per unit for the first half of 2025 rose by 12.8% even after accounting for an enlarged unit base following our equity fund raise in the fourth quarter of 2024. The growth was mainly driven by contributions from our strategic acquisitions in 2024 and also our strong portfolio performance. For the first half of 2025, we achieved portfolio reversion of approximately 51% following the renewal of a major hyperscale contract. We were also able to extend our portfolio weighted average lease expiry by rental income.
Looking ahead, our low aggregate leverage of 30% and the declining cost of debt position will put us in a favorable position for future growth. Taking a closer look at our financials, our robust financial performance was mainly due to contributions from the acquisitions in Japan as well as Singapore in 2024 and also contributed from the strong portfolio performance. As mentioned, this was partially offset by the divestments of Kelsterbach Data Centre and the absence of a one-off dispute settlement received in 2024. Additionally, floating rate borrowings enable us to benefit from the declining interest rate environment, effectively lowering our finance costs. For the first half of 2025, we have declared a DPU of SGD 0.05133 which will be paid on 15th of September 2025.
Next, moving on to portfolio updates, Keppel DC REIT achieved strong portfolio reversion of approximately 51% for the first half of 2025 driven by a major contract renewal in the second quarter. At more than 50% reversion, our portfolio is currently about 96% occupied with a weighted average lease expiry by lettable area of 6.9 years. For our existing portfolio, we are on track to conclude a 30-year land lease extension for Keppel DC Singapore 1 effective from end September 2025. This extension will provide an opportune time for us to review our mid to longer term plans for the asset which is not a built-to-suit data centre. In the meantime, our immediate focus is on backfilling the vacancies and managing contract renewals across the portfolio. One of our clients has exercised a break option at a small asset which represents about 0.5% of our AUM.
This client at Cardiff Data Centre will be vacating in June 2026 and we have already begun releasing efforts. Additionally, we have also reached out to the National Grid to determine the power intensification possibility for the site. At the same time, we are also assessing opportunities to reposition the asset to maximize its long-term value compared to a year ago. Our portfolio base has been significantly strengthened through our acquisitions and ongoing portfolio optimization efforts. We expect portfolio level performance to remain robust to create further value for unitholders. We are working towards completing the acquisition of 100% interest and land tenure lease extension for Keppel DC Singapore 7 and Singapore 8 by the end of this year.
At the same time, we continue to see interesting hyperscale opportunities in established data centre hubs such as Japan, South Korea, and Europe, and we will focus on establishing a strategic foothold in these markets. We have renewed the majority of contracts since to expire this year, leaving only about 2.6% of contracts by rental income to be renewed for the second half of this year. Building on our strong leasing momentum, we will continue to optimize upcoming contract renewals and expiries. We have also maintained our diversified global client base, which predominantly comprises hyperscalers that are strategically located across our portfolio. Adam Lee will now take you through the capital management updates.
Thanks, Hwee Long. Our aggregate leverage and cost of debt improved further in the second quarter, putting us among the lowest in the S-REITs sector and giving us a strong foundation for future growth.
Assuming no change in our capital structure, we expect our average cost of debt to remain around 2.9%- 3% for this year. Our weighted average debt and hedge tenor stands at 3.1 years and 3.3 years respectively, with our interest coverage ratio increasing quarter on quarter to 5.9 x.
As a t 30th June 2025, total borrowings are approximately SGD 1.6 billion with no debt maturing for the rest of this year. Our 2025 Euro loan was fully repaid in April 2025 using a portion of the proceeds from the divestment of Kelsterbach Data Centre to mitigate interest rate exposure. 76% of our borrowings are on fixed rates. We have also substantially hedged our forecast foreign source distribution till end December 2026. Will now take you through the outlook.
Thanks, Adam. I think global macroeconomic conditions remain uncertain amid the shifting trade policies and persistent geopolitical tensions. However, I think the market outlook for the data centre industry remains robust, driven by strong underlying fundamentals and incremental demand from artificial intelligence. These favorable industry tailwinds will support the manager's efforts to create sustainable long term value for Keppel DC REIT's unitholders.
Looking ahead, the manager remains committed to executing high quality accretive acquisitions and proactively managing the portfolio to enhance our resilience and growth. Thank you.
Thank you, Hwee Long. We will now take questions for analysts joining us on the Teams platform. Please click on the raise hand button if you would like to ask a question and wait for our queue before unmuting yourself. For the benefit of all participants on today's call, please limit yourself to two questions, and if you have more questions, please re-enter the queue. For those joining us online via the webcast platform, please type your questions via the chat box provided. Can we have the first question from Terence, JP Morgan?
Thanks Renee, thanks Hwee Long and team, congrats on the extremely strong reversions. This is Terence from JP Morgan. I just wanted to ask on your plans for Singapore 1. I understand that the vacancy has increased and congrats also on getting the land lease extension. In terms of plans, are you leaning more towards AI for the property or is there a potential redevelopment? If you could share more please. Thanks.
Okay. Morning Terence. Thanks a lot for the question. Very interesting question. We are also quite excited about the question as well. I think good thing, one of course, like what you rightfully pointed out, unfortunately from an occupancy perspective, it has come down with the exit of our tenant over there. Actually, from our perspective, like I mentioned, we do see it as a very strong opportunity for the REIT.
One part, of course, the immediate task at hand today is really working on that filling, right, the vacancy. The good thing is that having more contiguous space back now, now that we have it together in one piece, I think it's a big attraction. Second part, what I mentioned earlier, the reality is this asset, if you look at it, it's not built-to-suit data centre. From a space utilization perspective, we do see a lot of opportunities for us to further optimize it in the probably mid run, medium term. For us, like I mentioned, first thing first, the major focus is to backfill. I do see possibility for us to do something quite transformational, maybe in the midterm. That, of course, will entail quite a fair bit of forward planning, which the manager team will conduct.
Thanks so much. Also, maybe on the second question I wanted to ask on reversions, you have seen extremely strong reversions and I think in your guidance you said that there's really not much thesis due for this year. How should we look at reversions going forward, especially for the entire portfolio, not just for Singapore?
Thank you. I think reversion wise, we still continue to expect pretty robust numbers coming out of the portfolio. My asset managers continue to work very hard on the negotiation table for the leases up for renewal. If you look at it from a geographical perspective, we still, you know, because Singapore and Keppel DC are still our major colo markets, we still have quite a fair bit of leases to be renewed in these markets.
I think we are still quite fairly confident in terms of what we can achieve for these markets from a reversion perspective. More importantly, I also want to perhaps elaborate a little bit more that, of course, we have been delivering very good numbers, just purely our reversions efforts in the past couple of quarters. Apart from that, actually, if you look at our portfolio, apart from just this part of the organic efforts, there are also a lot of other opportunities within the portfolio, both organically and inorganically, that we can leverage on to find opportunities for growth for the portfolio numbers. Those will be efforts that we also intensify on. I think in due course, as we work on some of these initiatives, we hope to share more on different efforts that we have that can bring more value to our unit holders.
Thanks. That's all I have for now. I'll go back to the back of the queue.
Thanks, Terence. Next question. Derek from Morgan Stanley, please.
Hi. Morning. Hwee Long and team. Just wanted to clarify on the, on the reversions, I think it was 51% for first half. Right. For first quarter it was 7%. In second quarter specifically was it looking more like 80%+ , you know. Yeah, very high number. Could you share more details on how you were able to get those kind of reversions from the tenant and looking going ahead, what kind of more specific reversion outlook are you looking at for say 2026?
Okay, thank you. Thank you. No I think Derek, thanks again. I think for the question, right. One part in terms of the so called, you know, reversion for the second quarter, I think you guys probably can do the math quite, quite easily. Right. You are right. First quarter 7%, right.
Second, if you're looking at a full first half 51% will suggest for the second Q we are probably slightly north of the 51% number. I think the other part here too, I candidly I don't think it is in the 80 plus % I think because if you look at it from a percentage of these up for renewal actually the huge price coming out of 2Q. If you were to weight it right, I don't think it is anywhere near 80% but to your other question pertaining how have we been able to achieve this type of renewals reversion numbers? One part candidly I think of course we are very fortunate to be very well cushioned from the markets that we are in. Singapore we are setting we all know that it's a very supply constrained situation so I think that helps.
Fundamentally I think from a demand perspective we continue to see very strong demand signals so that help us quite fairly as well in terms of being able to have a successful outcome on the negotiation data. At the same time also the reality is also I think we look at it our portfolio from that perspective also I think there's still quite a bit of undeadness and also in terms of even though we have achieved such numbers I also want to perhaps I can also share a little bit more in the sense that especially I think some of you might have been able to make reference to silo data points of some other industry partners, our industry peers in recent times.
I think the approach that we have when it goes to the negotiation table with our end customer is also a point where we do want to make sure there's million outcomes, so we are not out there to so called, this the last dollar out them. Right. Which will suggest, I think, our renters, despite the TAWI version that you see, are still at pretty reasonable numbers compared to what the market is. I think this will put us in a very good position as well for the tech cycle.
Okay, just to follow up on that, Hwee Long, the underwentedness, is it about 50%, 60% gap between.
You mean currently? No, later. I think we probably won't be able to guide you so specifically on that front. Yes, I think we are still, if you look at it portfolio wide, I believe we are still, there's still some level of underwentness within the portfolio.
Okay. Is it fair to say, so is it fair to say 50%+, 60% rent reversions for major renewals is not unreasonable to expect going forward. Looking at 2026?
I think there are a lot of factors, actually. I mean, of course today I think we are in pretty good position in terms of the bigger environment. Of course, on a broad basis, who knows? I think if some macroeconomic factors were to change slightly, that might affect that, whether is it downwards or upwards. That part, I think, yes, I think that would be able to go closer and then we can see how the numbers will actually pan out. Okay, sure.
I just move on to my second question on acquisitions. Given your very favorable cost of funding, both on dividend yield and borrowing costs, should we expect a more imminent acquisition in Japan, South Korea or Europe this year? I think for us, of course, we're always on the lookout for opportunities. If there are good opportunities, obviously, that can create good level of accretion to our unitholders. We will definitely take a closer look. Today, announcing first half results means we are only at the halfway point for 2025. From that perspective, I think we still have quite a bit of time for us to do things if the right opportunity were to arise.
Let's see how I think, you know, on one part, of course, I think thanks to the strong support from our unit holders, we are in, from a balance sheet perspective, in a pretty good position. I think we also want to be very responsible as well and make sure that we don't jump at every single opportunity that comes our way. Right. We want to make sure we, whatever we get is something that makes sense for us strategically, ethically, and also that will help to improve, I think, the overall portfolio quality and resilience for the longer run. All those, I think, yeah, we'll see. Take a look out. I think as things pan out, I think hopefully we can make announcements if the right deal will come about.
Could you remind us of the target cap rates in these markets that you are looking at?
Specifically, I think if you look at the three so-called Japan, Korea, and Europe, where we are putting a bit of focus on Japan, I think is still in that 3%-4% region, and then for both Korea and the European space, it is in the 5%-6% region.
Thank you. I'll go back to the queue. Thanks, Hwee Long.
Thank you.
Next question. UBS, Dale?
Thanks Renee. Hi Hwee Long and team. Congrats on the very strong results. Just wanted to follow up a bit more on this power intensification that you mentioned. Right. So understand that you know for example SGP 1, you're saying it's a bit more medium term, for Cardiff also potentially after the tenant leaves. Should we be looking at this overall power intensification, is it going to be happening in the next financial year or only in the next two, three years? And what kind of downtime or CapEx amount should we be expecting?
Thank you. I think for power intensification efforts, right now, of course, for example, you rightly pointed out, this first step we have to establish whether it's the opportunity for us to upsize.
If there is, it will be a multi-year type of situation because we also have to factor in when the power will be available to site and whatnot. It will not be something that is very immediate; this will be more mid to long term type of efforts. Apart from that, while I mentioned about power intensification, the other part that we are actually working on quite hard from a portfolio perspective, asset management, is that even within the current power construct, we're also looking at different ways for us to further improve our operating efficiency. From data centres, you will realize there's also another metric called PUE. If we are able to further improve our operating efficiency to lower that number, it also means that we are able to squeeze out additional salable power even within the existing power construct.
That's also another major trend that we are working on as well to try to further improve our portfolio. There are multi-pronged approaches for that. That's the way that we are looking at it.
Meaning to say, some of this smaller intensification will happen concurrently while the property is still running?
Correct, correct. Also, you mentioned about the point about from CapEx perspective. Sorry I missed that part. I think today, obviously, I don't have anything specific to share with you. Those will be depending on the outcome and then we look at depending on the intensity of the initiative that we have tailored for each of those assets. The number obviously will vary.
I think the concept that we are working on from a planning perspective in terms of how we look at it is that, you know, because today, now I mentioned if you look at the overall portfolio, actually we have boosted it quite substantially in the past 12 - 18 months in terms of resiliency. I think the concept whenever we do such forward planning, given that it's mid longer term, it also means that we have the ability to forward plan quite carefully. The base approach is really to ensure our DPU performance continues and remains stable notwithstanding some of these initiatives that we are planning for. That is the approach that we are looking at.
Okay, got it, that's clear. My second question is a bit more on SGP 1. Like you say, now you have a contiguous space and given the tight supply in Singapore, what should we be expecting in terms of how quickly will the space be backfilled? Or maybe even your views on this Cardiff space, how quickly can it be backfilled? Typically for these spaces, should we be expecting further downtime for fit outs as well?
For Singapore? Of course, I think you are right. I think the market is still very strong. There is also a matching. We have to match the demand to the power that we have available. Those parts need some time. I'm quite confident you will get a good outcome out of it. In the case of Cardiff, that is a very small asset. Actually, we are also contemplating because the asset sits on a much larger so-called real estate.
There might be also other so-called alternative use type of potential outcome that can be favorable to us. We are keeping our options open. Anyway, I think the tenant is looking to exit in the middle of next year. We still have some time. Give us some time, we are working through and then we will probably share more along the way.
Thanks. Just to follow up on SGP 1. Should we be expecting the vacancy to be backfilled within the coming quarter? Should income contribution commence in the coming quarter or is it more conservative to assume at least six months downtime there?
I think you should be conservative first.
Okay, got it. That's clear.
J ust be conservative yourself.
That's all from me. Thank you.
Okay, thank you.
Next we have a question from the webcast. Derek Hing, how much did SGP 7 and SGP 8 contribute to MPI in first half 2025? I noticed you set aside an amount for the land premium, which artificially held down your DPU in first half 2025. Isn't the land premium supposed to be debt funded in second half? How much was set aside in one half, and what is the payout ratio going forward after setting aside the CapEx result?
Okay, thank you, Derek. Maybe I'll get Adam to help answer this question.
Singapore 7 and Singapore 8 contribute to approximately about a quarter of the MPI. So it's about 1/4 of the MPI. As for the distributable income to be set aside for the land premium, I think we have disclosed that in the circular and also shared that in first quarter as well. I think the question next is isn't the land premium supposed to be debt funded in second half 2025? I think what we have stated in the circular refers to the lease extension consideration. Those are expected to be debt funded in the second half 2025. I think the next one was how much was set aside as of first half 2025. Over SGD 5.4 million has been set aside in relation to this.
This includes the first year CapEx reserves for Singapore 7 and Singapore 8 that has been reclassified for such uses. Payout ratio for DI for FY 2025 and going forward after setting aside CapEx reserve, we expect the normalized DI to be about 7%- 8% from setting aside. That means the payout ratio is 92%- 93% in a normalized.
Thanks, Adam. Okay, we'll take another question from the webcast. Here, Mei An from the webcast is asking about leasing progress at Gaolhu DC, Guangdong DC, as well as GV7.
Okay, thank you, thank you for the question. All right, a few things, I think maybe I just go in that order as well. For the few assets that were pointed out, I think one, Gaolhu itself, we are still in that releasing phase, right? In fact, I think, to be honest, we have participated in quite a few NFTs as well at this juncture. The earlier ones, candidly, the market competition is pretty intense. On the REIT side, we were not as competitive as some of the other people who put in bids. That's what we have experienced in the first half of this year. The flip side is that the demand signal is still very strong over there. There's still a lot of interest in terms of capacity requirement. I think it's about calibrating the tar rates that we should be going out with. It will continue.
We have been receiving inquiries about our availability over there. We'll continue to work on it and hopefully in the not too distant future we can share some positive updates if some of these initiatives pan out. The second one, for Guangdong, similarly, for Guangdong we do need to give it a bit of patience. Macro, of course, the Chinese DC market, there's a lot of wind shoots that's been popping up since the inception of this year. The key is really to get levitized and then flow through to out of the world in Guangdong itself. One key attractiveness of the asset that we have over there is that it sits within a bigger campus.
Overall, the bigger campus has quite substantial power available that they have gotten in terms of the ESA permit, which will make it actually quite attractive if users were looking out for AI usage which requires the power requirements. There are actually different optionalities. On that front, today what we have done is really, of course from income perspective, the provision has been made 100% for those income standpoint. Let's continue. We will continue to focus quite heavily in terms of finding, creating that income profile for this asset. Once we're able to do that, it will be incremental to the current set of numbers that we have at this juncture. Lastly, I think the question was pertaining to GV7 in London, right? This one again, there's still quite a bit of time. We are engaging a customer in this case.
Again, it's a very small asset and location wise, in fact, this is right smack in ground zero, right in the centre of Docklands, right, which is actually just next door to the interconnect DC for the entire Europe. I think from a connectivity perspective, this is a very strong location. On that front, nothing to update specifically at this juncture, but efforts are ongoing. We will provide further updates along the way as we get more clarity.
Thanks, all. Next question, can we have it from Citi, Brandon ? Brandon, we can't hear you.
Brandon, you're on mute.
Maybe we try again later, but we come back to you. Rachel, Macquarie?
Hey. Hello. Good morning, Renee and team. Can you hear me?
Yes.
Okay, great. Yeah, congrats on the strong reversions. Maybe just back on SGP1, if I hear you correctly, you're leasing out your space, you're trying to backfill as well, but at the same time trying to see whether you can do more with t he asset, is that right? Does that mean that your plans will only come through after two to three years?
Hello, Rachel. Yeah, not wrong to say so, right? I think any of those plans, quite a fair bit of planning engagements will need to be done. It will take time, right. That's why to me it's probably a medium term opportunity for us as of now. I think we also want to take advantage of the current market condition. That's why the effort today is really about immediately it's more backfilling. At the same time we are also exploring optionalities for that said, given that I think there's probably quite a fair bit of things we can do over there. As it is not originally a purpose built to suit data centre, from a space usage standpoint, I think there's a lot more that we can do to further optimize it.
Okay, got it. For this SGP 1, are there more vacancies that's going to come up or that's it for now, and then you're just backfilling the other 50%?
I think we are about there, right, because these are the major ones. Of course, along the way there will be plus minus, which is the normal cost, right, for any colocation type of business. Those will be very small, the standard so-called natural vacancy that we expect. I think the key is really to view the space that's been vacated right now. On that front also, if you look at it from a real estate perspective in terms of NLA or GFA, because it's not built-to-suit type of data centre, actually there's very substantial so-called non-DC space that's embedded within the asset itself, which is to the tune of maybe around 30% of the NLA. Under that, which also means that that's where I think the opportunity that we are seeing is.
I think in terms of releasing, to your point, I don't think we will be increasing the remaining so-called 50% in a sense because majority of it is actually non-DC in nature. From a power perspective, yes, I think we are looking to backfill all the freed up power that we have.
Okay, got it. Yeah, thanks. Thanks for the color. My second question is on acquisitions. What kind of sizes are you looking at when you're looking at all the Japan, Korea and Europe?
I think that one really depends on the specific opportunity. I think today what we see in those markets in terms of the opportunity set, it's actually quite a wide range. If you look at it just from so-called size perspective, we do see smaller opportunities to pretty large ones. Taking a step back, I think looking at our capital CV, I think in terms of the strategy, right, I mentioned in previous rounds one part from an acquisition perspective, I think we are doing active pivot right towards a hyperscale strategy, i.e., I think, you know, we will probably tend towards, you know, looking at our budget more favorable to us opportunities that are hyperscale in nature, which will suggest that, you know, they will develop those sub-10 MW assets. Probably things north of, you know, 20 MW, 30 MW type, you know, easily.
That is probably what I can share at this juncture.
Okay. Those core assets is like w hat, like SGD 200 million, SGD 300 million and above? Something like that?
I think I can't share. It really depends because there are so many permutations. It depends whether is it our shell, is it fully fitted, the type of tenancy you have, the lease term and whatnot. Very hard to specifically nail down, right on the very defined. I think in terms of the nature of that set, what I can share is that our focus is hyperscale facilities because I think that's the segment that we have very strong conviction that it's going to be in a sweet spot given the developments in the sector for the years ahead.
Okay, sounds good. All right, thank you. I've used up my two questions. Thank you so much.
Hey, thanks a lot. Thanks a lot, Rachel.
Thanks, Rachel. Brandon, you want to try again?
Hey, can you hear me now?
Yes. Great.
Thank you all. Good morning. Hwee Long, I just want to ask your so-called transformation plan for DC 1 as well as the potential conversion of this unutilized floors at DC 8, right. How contingent are they on the availability of power under the upcoming CFA? Is it already available or is it still pretty much not fixed yet?
Thanks, Brandon. Thanks for the very good question. I think this goes back to the earlier discussion with Dale. There are two parts. One, if we can bring in more power, which means that you will be in that space, will be contingent on the CFA mentioned, right. That will bring in a lot more power. Two, actually within the existing power set, there are opportunities for us to make ourselves more efficient and free up sellable power capacity that will be more nearer term.
That is not contingent on the CFA. There are two strong, two potential optionalities that we can explore. In fact, they can be concurrent. It does not need to be an either-or situation.
At this point in time when you're engaging with the government authorities, do you think they are a bit more open towards tendering this additional CFA or do you think it's still status quo?
That part I probably can't shed more color on because the reality is we are all waiting for the very definitive guidance from the government authorities on the next CFA. Let's see how that pans out. At this juncture, I probably don't have further color to add specifically on that front. Yeah.
Okay. Okay. My second question will be more on your growth going forward. If I look at your current gearing, after paying up your land premium for DC 7 and DC 8, you're going to have close to SGD 500 million of that headroom. You seem to have a lot of plans. What's your priority? I mean, if you have a big super good hyperscale acquisition today and suddenly you have more power, where will you really deploy this additional capital?
Okay, sorry, can you repeat your last part of your question?
Basically, I think you have a lot of exciting plans, but ultimately your debt headroom after paying out the land top up comes down to maybe SGD 500 million, SGD 600 million. In terms of a priority standpoint, are you looking more at acquisitions or more at your so-called transformation plans of all your assets?
Okay. Okay, thank you. Thank you. Okay, thanks for clarifying.
You have said a lot of very, very ambitious stuff.
Just want to manage your expectations if I appear too overly ambitious. I think on the front two parts. One, of course, I think you rightly pointed out, even if you account for the second step for the Singapore DC 7, Singapore DC 8, that we have, I think we still have quite a decent size headroom to do meaningful acquisition per se. I think again it's a function of a lot of things. One is the deal compelling or not. Others will stay in terms of our determination. In terms of prioritization, like I mentioned, for those of more organic nature, if you ask me, I do not anticipate anything significant in the immediate term from an organic perspective in terms of mega AI or whatnot, because those obviously require a lot more forward planning.
Also, from the perspective back to the fundamental point I mentioned, the form planning that we are looking at entails a huge part is how do we also make sure DPU is not affected even if you would execute some of these plans. That's the basic construct that guides how we look at things. From that perspective, if you are thinking of it from a more immediate perspective, that remaining headroom post the SGP 7, SGP 8, I think if the right acquisition opportunity comes about that gives a compelling return profile, I think we will be quite happy to execute and to move on those.
Okay, that's very clear. Hey, thanks much. Thanks much.
Next question. Joy, HSBC.
Thank you. Morning, Keppel team. First question from me, just to follow up on Brandon's earlier question. In terms of, you know, power, in terms of getting power, would you be bidding for CFA yourself, or would you be relying on your parents?
Hey, hello. Joy, that part I think nothing is firm at this juncture. Of course, you rightfully pointed, I think one part we are our sponsor, right, and hyperscale obviously has strong capabilities in the sector. I think the options are still open. It really depends on what comes out specifically in terms of what the CFA entails and what our asset plans are. I wouldn't want to limit us to any one option right now. I think still all out there for consideration.
Are you also, in terms of development, open to do development fully on your book, or would you rather partner up with your sponsor?
I think if you will look at it, of course I think today you asked me will I go out and buy a MP land and develop ourselves. Probably less of, I think less of incentive for us to do so. We are thinking more from the perspective of are we able to execute, I think meaningful AIs and whatnot. Right. What you can see is that one part, you look at our from the portfolio perspective in terms of our size today. Right. You marry that with, I think, regulatory consideration. Right. I mean based on the REIT rules. Right. Especially for assets held for a longer period of time. Right. I believe Cuscaden Peak , I think we will be able to handle some of these opportunities.
In terms of enhancing PUE, would you need additional CapEx to do that?
I don't think it will require substantial, very significant because some of this entails how we run the asset. Some are behavioral in nature, some might require some minor so-called CapEx improvements. I do not think they are going to be needed moving type.
Okay, cool. My second question is on rental reversion. The second quarter reversion, is this more towards the quarter end or is it beginning of the quarter?
Okay, I'll let Adam Lee answer that question.
Sure.
Okay. Middle of the call.
I see. When you talked about sort of rental, you know, your current passing rent vs spot rent, there's still healthy space. Is this particularly with Singapore assets or is this also for your overseas assets? I think your next few years, actually most of the reversion is from overseas assets, right?
Yeah, I think if you look at it, both basically our colo markets, right, Singapore, Dublin, I think we are still, I think there's space for us to move. Yeah.
Okay. For the rest of, I mean outside of Singapore and Dublin, you are pretty market because you mentioned about competition in Australia. You have another assets coming up in U.K. as well, I think.
I think it depends. I think for like U.K. or those, because some of those are structured as master leases. For those, it really depends on the conversation that you have with those operating partners that we have. For markets like if you look at it, our acquisition in Japan last year, they said, I think quite clear. Definitely underranked. In the coming years, midterm, where the existing list come up for so called renewal, certainly I think there is an opportunity for us to do something about it. It depends on each specific market. Generally, if you look at the entire portfolio, I would say overall I think we probably still have good room to play. Or relation.
Cool. All right. Thank you so much. That's all from me.
Thank you. Thank you. Thank you.
Yeah, thanks, Joy. Next question. Donald.
Hi, Donald. I think you are on mute.
Okay, we come back to you again. Okay. Donald, Jon from UOB Kay Hian.
Yeah, good morning and congrats on the good results. Your press release mentioned committed to a fourth Irish virtual power purchase agreement. Does that mean that you can increase the power capacity of the two data centres in Dublin by how much and by when? Second question relates to the 10% reduction in PUE for data centres that have undergone major enhancement work. Which are these data centres that have undergone major enhancement work, and does that mean that for these data centres you can increase your charges by 10% in 2026? Yeah.
Hey, Jon, Renee here. For your first question on WPPA, it's not new power, it's just green energy for our Dublin Data Centres, both of which are already on 100% PUE. Therefore, the 10% PUE reduction target is for the major AIs, as in it's for the assets that have other four major AIs. These are SGP 5, Dublin 1, and Dublin 2. These have already been announced over the past few years.
For these three data centres, there will be positive impact in 2026. Maybe you can increase revenue from these three data centres by 10% in 2026, is that correct?
These AIs were already completed in the past few years, 2019 - 2021.
Okay.
They are already embedded in the existing, whatever we have. Right. Whatever new things that we are working on, those we will share more along the way as well as we progress. Yeah.
Okay. Can I just have a short follow up for the land tenure lease extension for SGP 7 and SGP 8? Could you remind us how much you need to pay in the second half and after payment, where would your new, where would your aggregate leverage increase to after payment? Thank you.
Okay. Thanks, Jon. I think for the so-called second, or rather that would be the third step, right, what we have said, I think when we announced that last year was that for the third step, on the assumption of a 10-year extension to the underlying land lease, we are looking at a SGD 350 million incremental payment for the final tranche. Yeah.
I think that's what we are looking at. I think from a gearing perspective, on the assumption of that SGD 350 million, it will bring us closer to a 34%, 35% from an average standpoint. Yeah.
Thank you, Hwee Long. And once again, congrats on the very good set of results. Thank you.
Thanks, Jon.
Thank you. Thank you, Jon.
Thank you. Donald, you want to try again? Donald? Maybe you can email us your questions and I will read it out.
Hello, can you hear me?
Hey Donald, yes you can.
Sorry, thanks for the opportunity. A couple of questions from me. Maybe just follow up on the leases at the lease expiry coming to 2026. Maybe another way to ask, what's the vintage of these leases coming through? Are they mostly Singapore leases? How many years were they previously leased, and how many of these leases will be offshore?
Okay. I think to your question, on the forward-looking basis, in terms of the leases that are up, both for the rest of this year as well as for next year, broadly speaking, the majority will still be coming across Singapore. Vintage wise, it varies. We do have some that are slightly longer, some that are more mark to market. It's a mixture.
I mentioned, don't worry, we are still very positive in terms of what we can derive from a reversion perspective, and more importantly, reversion is not the only lever that we have. We are also looking at a lot of other initiatives within the portfolio to see how we can further boost the performance that we have.
Specifically, could you pinpoint which assets that's coming through?
No, we don't typically provide that level of guidance.
That's fine. For SG 1, given that occupancy is now 56% and you mentioned earlier that some of these vacancies are difficult to backfill because they're not really data centre, if I got it correctly. My question is, what is a realistic stabilized occupancy number when you work on backfilling before you take on any redevelopments in the medium term?
I think for this asset, like I mentioned earlier, quite a significant bit of the red space is actually non-data centre in nature. Given how the industry is morphing today, a lot of our end users have a lesser requirement on that non-data centre space, which is fine also because those are not the very high-yielding industry. It's more to support as additional amenity to our end customer. From that perspective, if you look at it today for SGP 1, actually about 31% of the real estate space is non-data centre in nature. The focus now is really to backfill more from a power standpoint, which means that I think on a stabilized perspective you should probably be expecting it to hover around on a stabilized basis in maybe 70% ish. Right?
Okay, 70%+ I think that's helpful.
That's more from NLA standpoint, I think. Like what I mentioned again, we are looking at the power to backfill that gap.
Sure, sure. I wanted to get a sense of the stabilized utilization rate given that it's pretty low. Now a quick follow up also on Dome, you mentioned in the previous few quarters or so that there's green shoots, but we also need to be patient. What's really stopping the end users from committing, given their power is attractive for AI users? Realistically, is there any guidance on timeline? Again, previously you mentioned within the range of 24 months. Is this the case?
No, I think if you look at it, a huge so-called obstacle for a lot of the Chinese AI players is really, I think, still fundamentally the access to the GPU chips right on the front.
Also, of course, again, I think we got further, further so-called, if you look at, interpret it as a positive indicator, would be Gentle Wang seems to have to be going there quite often. More recently in the past couple of weeks. Also, I think the news coming out that in stage 20 again they seem to be able to make it available to the Chinese market. I think this will be a very important determinant for the AI players, the Chinese AI players, to be able to truly scale up their business. I think that's the part because unfortunately for us today globally there's still a lot of so-called geopolitical things that are still panning out. I think that does bring a little bit of volatility in terms of how the Chinese so-called domestic AI players can scale up according to what they want to do.
I think that's the part where we probably need to be a little bit patient. As the year develops you will see that things seem to be moving in the right direction. With those opening up, hopefully we will be able to benefit also ultimately.
Okay, I think that's all for me. Thank you.
Thank you so much. Thank you so much.
Thanks, Donald. We have two more minutes, but we have a few hands raised. Maybe if you could take one question from each of the three remaining analysts that are still waiting. First one, Yew Kiang from CLSA.
Hi Hwee Long. Just to developments, right. I think I want to follow up on Joy's question. Are you saying you're ruling it out? Totally. Also, can you give us a sense of development use for Japan, Korea, Europe, the region that you are looking at?
Hello, Yukian. Your question is more of specifically, will we be going out to buy and develop ourselves?
I mean you can partner with somebody because you do have a lot of firepower.
Understand. I think for us we are quite clear. I think we are more core in nature in terms of our strategy. I don't think we will necessarily want to move up the so-called risk profile so much to undertake pure greenfield development on a massive scale.
Also, because we have from a development headroom perspective, based on the guideline that we have, the reality is that we have limited firepower on that front. I think we will be very careful in terms of how we utilize the levers that we have available to us to the best of our benefit. Yeah.
Okay. I'll leave the questions to the others in the queue. Thanks.
Thanks a lot. Thanks a lot, Yew Kiang.
Thank you, Kiang. Next question, Xuan from Goldman.
Hi. Morning. Just one question on divestment. I think you have done some. Is there any other ongoing discussion or how should we think about it next?
Hello, Xuan. Yeah, of course. I think there's still the, to be close. I think in the second half this year will be the Malaysian one basis pay. Right. Apart from that, if you look at the whole portfolio today, I think we have maybe about 3% of the portfolio that's classified under so-called smaller data centres with smaller power, which may not really 100% fit into what we are pivoting towards on the hyperscale end. For those, like what I shared previously, we are actually looking at different ways. One part is again back to the same point. We have ability to intensify power into the strategies here that we have high conviction on. Yes, we will do it.
If not, if the right opportunity comes about, we won't be shy to move away from those and redeploy our efforts into strategies that we are executing for the longer run.
Thank you.
Last question, Terrence from UBS.
Hi, do you mind sharing what's the SGP 1 power utilization rate? And also where are we with the tax transparency outcome for SGP 7 and SGP 8?
Thank you. Thank you, Terrence. I think first one, on the utilization, unfortunately we don't really, we can't disclose that. Sorry about that. I probably can't share further light, but on your second question maybe I get Adam to give you an update on where we are. Yeah.
We have actually submitted a tax transparency application and I think that's something that we have to wait for a reply because we are quite confident that we are able to get it by this.
On track. On track.
On the first question, possible to help us understand what degree of magnitude there could be eventually when you backfill.
You're talking about back to the SGP 1 in terms of the magnitude, correct.
Because I guess you are looking to lease it up to fill up the power back to full capacity, full utilization, right. How do we make sense of the delta?
The delta, because I think it's hard to give you a proper guidance in that sense because the delta, it really depends, it's two functions. One is power available. The other part is also about what type of rental can we achieve, right. That part is obviously subject to a lot of negotiation with our end customers. Today I wouldn't want to, or rather I can't really give you a very clear definitive answer on that front also because some of those conversations are aligned. Don't worry. I think that part, give us some time. Along the way we will hope to continue to slowly, as things progress, we get more firm, we would share more positive news with you.
Fundamentally, I think you look at it, the reality is that the GSS in Singapore, the fundamentals as far as demand- supply is concerned, I think it's still very strong for asset owners. Give us some time. I think that part, once we have positive environments, we'll certainly share with all of you.
Thanks. All the best.
Thank you. Thank you.
Thank you.
Thanks, Terence. Thank you, everybody, for joining us today. We have come to the end of Keppel DC REIT's result webinar. Thank you again for joining us, and have a pleasant day ahead. Bye.